Chasing Monsters under the Bed

Isn't politics wonderful?

Goldman Sachs looks like one of the biggest crook on Wall Street because of one of the basic rules required by brokerages to remain at arms length with customer accounts. The concept is called a "Chinese Wall".

Let's take the case of poor Fabrice Tourre, the middle manager that GS has thrown under the bus in this mess. The scope of his job was to sell mortgage derivative securities to customers. As a confident young man, he is brash and apparently uncaring, yet he did his job well.

Because Tourre was in the Sales department, he is not and should not be party to what is going on in the Financial Engineering or Corporate Finance departments. His only contact with the Trading department should be to simply place orders.

I fear, though, that because of Politics, the poor bastard is gonna spend a long time in jail ... just for doing his job.

Brokerages have whole departments in charge of Compliance (with the laws). It is their job to police the practices of a firm. Why aren't they on trial? Why did they allow an institutional customer to cherry pick mortgages for a short portfolio? I spent a lot of years at a brokerage firm, and the institutional guys would not even talk to me except through the Compliance department. And even then, my Office Manager had to be in the loop.

I am not even saying that there are not "iffy" practices at Goldman Sachs. Whenever big money is involved, there are going to be big crooks. Ask Bernie Madoff. But for the most part, we strive to be explicitly fair to the customers, the markets, and our firms just because we are really honest guys save those tiny few.

So Fabrice Tourre is the Monster that Wall Street is going to defeat and be the hero.